This invention relates to electronic trading systems. More specifically, this invention relates to order types that are used in electronic trading systems.
In electronic trading systems that trade based on bids and offers, many traders have requested protection from mistakenly trading through the stack (TTS)—i.e., accidentally hitting or lifting a number of current bids or offers at different prices instead of only acting on the bid or offer at the best price (the highest bid price or the lowest offer price). When these traders buy or sell items, they typically only want to execute trades at the current best price.
Courtesy of the increasing usage of “black box” algorithmic and statistical model trading computers connected to electronic trading systems, coupled with the increased speed of communications in modern broadband network environments, the price a human trader is willing to trade at may have changed by the time he or she reacts—e.g., by entering a trade command—to what he or she sees. Modern trading systems give rise to the situation of a “race condition” whereby the price a trade may be concluded at is, according to Price & Time priority matching algorithms, the first order to arrive at the trading host computer. However, the trader may also be remotely domiciled—e.g., at home in the Country or mobile—and connected at a slower network speed. As a result, the price the trader is witnessing may not be the actual price in the central trading host computer at that time. If the trader enters a trade command at a worse price than has just been updated, the trader runs the risk of missing the better updated price while other traders are ahead in the market, thereby causing the trader to trade through to the worse price.
For example, suppose that, in the market for an item such as a U.S. Treasury five-year bond, there is a bid for 100.10 and an offer for 100.11. In such a market, one participant may enter a buy order at 100.11, in an effort to lift the outstanding offer of 100.11. At substantially the same time, another participant may have entered a sell order at 100.10 in order to hit the outstanding bid of 100.10. Nevertheless, if the new selling participant was aware of the new buyer at the higher price, he would have not sold the bond at the lower price. Rather, he would have preferred to sell at the higher price or at least be placed in a queue to sell at the higher price.
A trading participant would typically want to participate at the best available market price as opposed to at a price that was worse than the best available market price. Additionally, upon seeing a better available market price, the trader's perception of the marketplace is updated and he or she is less likely to want to trade at the worse price.
Therefore, it would be desirable to provide participants with an order type that restricts the trading to only the best market price available.
It would also be desirable to provide participants with an order type that circumvents the race condition caused technically by electronic communication being quicker than human reaction.
It would also be desirable to provide a preferably configurable electronic trading system setting that restricts some or all of a participant's trading to only the best market price available.